Exact Photo Service purchased a new color printer at the beginning of Year 1 for $39,000. The printer is expected to have a four-year useful life and a $3,900 salvage value. The expected print production is estimated at 1,500,000 pages. Actual print production for the four years was as follows: 551,300 483,700 384,700 389,600 1,809,300 Year 1 Year 2 Year 3 Year 4 Total The printer was sold at the end of Year 4 for $4,300. Required a. Compute the depreciation expense for each of the four years, using double-declining-balance depreciation. b. Compute the depreciation expense for each of the four years, using units-of-production depreciation. c. Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Assets: Assets are the resources of an organization used for the purpose of business operations. They include both current and non-current assets. The assets which are used or are converted into cash within a year or less are called current assets and assets which are used for long term i.e. more than a year are called non-current or long term assets.
Depreciation: It is the value of the asset diminished for its use in the business operations. Thus, a portion of the value used in a year is treated as expense and is charged against the revenues.
Useful life: It is the period during which the asset is expected to work or is used for the purpose of business operations.
Salvage value: It is the expected value that can be fetched for an asset at the end of its useful like.
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